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INVESTORS
VALUE
BUILDER
FUND
ANNUAL REPORT
MARCH 31, 1997
REPORT HIGHLIGHTS
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* Your Fund achieved excellent performance results for the 1-, 2- and 3-year
time periods ended March 31, 1997, comparing favorably against other
balanced funds.
* The Fund's asset mix emphasized long-term holdings with stocks and bonds
representing more than 90% of the portfolio. New and existing shareholders
purchased $76 million in Fund shares over the past 12 months.
* The investment environment was generally positive for stocks and bonds
during the past year due to low inflation and interest rates, continued
corporate profitability and strong money flows into equity investments. If
uncertainty concerning any of these factors generates additional volatility
in the investment markets, we would view this as an opportunity to purchase
securities at a much larger discount to intrinsic value.
* The success of the Fund's investments will be determined by the ability of
company managements to run their businesses well and focus on profitability
and returns on invested capital. As managers of your Fund, we devote a
meaningful portion of our research effort to evaluating managements'
interests in creating value for their shareholders.
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FUND PERFORMANCE
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Growth of a $10,000 Investment in Class A Shares*
June 15, 1992-March 31, 1997
[Graph appears here--see plot points below]
10,000 6/92
10,776 12/92
11,526 6/93
12,043 12/93
11,666 6/94
11,998 12/94
14,076 6/95
15,927 12/95
17,217 6/96
19,851 12/96
20,038 3/97
$10,000 invested in the Value Builder Fund Class A Shares at inception on June
15, 1992 was worth $20,038 on March 31, 1997.
Total Return Performance*
Class A Class B Class D Institutional
Periods ended 3/31/97 Shares Shares Shares** Shares
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1 Year 19.9% 19.0% 19.5% 20.2%
................................................................................
3 Years (Cumulative) 70.8% -- 69.0% --
................................................................................
Since Inception 6/15/92 1/3/95 11/9/92 11/2/95
------- ------ ------- -------
(Cumulative) 100.4% 64.0% 88.5% 30.7%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales
charge were reflected, the quoted performance would be lower. Performance
figures for the classes differ because each class maintains a distinct
expense structure. For further details on expense structures, please refer
to the Fund's prospectus. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their
original cost when redeemed. Past performance is not an indicator of future
results. Please review the Additional Performance Information on page 6.
** The Fund has not sold Class D Shares since November 18, 1994, but existing
shareholders may reinvest their dividends.
1
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LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report on the progress of your Fund for the year ended
March 31, 1997.
Performance Update
The Value Builder Fund had an excellent year with a gain of 19.9% for the
Class A Shares. The Fund's strong equity performance was due primarily to the
earnings gains of the portfolio companies and the management focus that helped
to create these gains. Many of the Fund's bond positions did very well, posting
double-digit returns even though interest rates were essentially flat year over
year.
We are especially pleased to report that the Fund's performance continues
to place it in the very top tier of Lipper Analytical's Balanced Funds category,
with rankings of 4th out of 294 funds, 1st out of 249 funds and 1st out of 177
funds for the 1-, 2-, and 3-year periods ended March 31, 1997, respectively.(1)
In addition, the Fund has received an "A" rating in The Wall Street Journal for
the 1- and 3-year periods ended March 31, 1997.(2)
Illustrated in the chart on page 1 is the growth of a $10,000 investment in
the Fund's Class A Shares since inception. A full summary of investment returns
for the Fund is also provided on page 1.
Asset Mix
During the past year, we have maintained the Fund's long-term focus with
more than 90% of the assets in stocks and bonds and less than 10% in short-term
investments. The pie charts on page 3 reflect the current asset mix as well as
the asset mix a year ago. The slight increase in the short-term investments
category over the past year is primarily due to the purchase of Value Builder
shares by new and existing shareholders. These purchases totaled more than $76
million, and of that amount almost $50 million has been invested in stocks and
bonds. As we have said in the past, we very much appreciate this expression of
confidence and will certainly make every effort to see that it is well-deserved.
The Fund's total net assets were $345.4 million at March 31, 1997.
- ------------
(1) The Lipper rankings are based on performance for the periods ended March
31, 1997 relative to other funds in the category. Performance figures used
in these rankings exclude the impact of any sales charge.
(2) Funds are categorized by The Wall Street Journal based on classifications
by Lipper and are ranked by total return performance relative to other
funds in their respective categories. This ranking indicates that the
Fund's 1- and 3-year total returns placed in the top 20% of 487 and 332
funds, respectively, in the Blended Funds category.
2
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Asset Mix
3/31/96 3/31/97
[PIE CHART APPEARS HERE [PIE CHART APPEARS HERE
SEE PERCENTAGES BELOW] SEE PERCENTAGES BELOW]
Short-term Investments.... 3.6% Short-term Investments.... 7.9%
Fixed-Income..............25.5% Fixed-Income..............28.1%
Common Stocks and Common Stocks and
Convertibles............70.9% Convertibles............64.0%
Investment Environment
The past year has been a very good one for the investment markets.
Inflation, interest rates, corporate profitability and money flows have all
contributed to the positive environment for stocks and bonds. In recent weeks,
prompted by a strong economy, concerns of rising inflation and a fear of
"irrational exuberance" in the financial markets (as Federal Reserve Board
Chairman Alan Greenspan put it), the Federal Reserve raised the Federal Funds
rate by one-quarter of a percent in March. This base rate increase and concern
over further Fed action have given some hesitation to both the bond and stock
markets. If this uncertainty creates any additional volatility in investment
markets in coming months, we will view it, as we always have, as an opportunity
to improve the overall prospects for the Fund's portfolio.
March and April bring a flood of annual reports to our offices. Reading the
reports of the companies we own or consider owning, it is clear that we are
investing in businesses with long-run prospects rather than slips of paper whose
price changes present daily trading opportunities. Over the long term, our
success for you will be chiefly determined by the business performance of the
companies we have selected. Relying on annual reports as key input, we focus on
the profit opportunities of the businesses, the skill and motivation of the
managements and the long-run value of the enterprises. The skill and motivation
of management is perhaps, more than any other ingredient, the key to the
investment success puzzle. History has clearly shown that the ultimate
determination of long-term value creation for any company is not so much the
businesses it owns but the way management runs them. Understandably, we devote
an enormous amount of time assessing the managements of the companies we own.
3
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LETTER TO SHAREHOLDERS (CONCLUDED)
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Portfolio Developments
In past shareholder reports we have stated quite clearly that we intend to
periodically make candid reports to you highlighting our successes and our
failures. In many respects such a "scorecard" allows shareholders the
opportunity to see just how well we have executed our game plan of buying good
value.
Listed below are our five largest holdings with costs and market values, as
well as the percent changes, over the past 12 months.
Five Largest Holdings
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Market Value Performance
Cost as of 3/31/97 3/31/96-3/31/97
................................................................................
Conseco $ 5,940,050 $17,664,941 96.9%
................................................................................
McDonnell Douglas $ 2,346,273 $ 7,320,000 33.2%
................................................................................
Johnson & Johnson $ 2,336,865 $ 6,027,750 14.6%
................................................................................
J.C. Penney* $ 2,389,026 $ 5,937,123 23.8%
................................................................................
IBM $ 2,754,703 $ 5,907,125 23.4%
................................................................................
Total $15,766,917 $42,856,939
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* Represents acquisition of Eckerd Corp. by J.C. Penney during the fiscal
year.
The success of these investments was the result of two primary factors:
price and management. For the "price" part of the equation, all of the above
holdings were purchased when their shares were depressed due to temporary
disfavor on Wall Street. Such disfavor often allows the purchase of shares at a
much larger discount to intrinsic value than might otherwise be possible. The
second part of the equation was "management." In each case, management had
proven themselves to be quite capable of running the business as if they were
owners (which they are), with a clear focus on profitability and returns on
invested capital.
In an effort to complete the scorecard we have also provided a list of the
biggest gainers in the portfolio over the past 12 months (see chart on page 5).
Hopefully, this scorecard reinforces what we have emphasized in previous
letters about buying "good value" and allowing sufficient time for such value to
be recognized in the investment marketplace.
4
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Best Performers (3/31/96-3/31/97)
Security Percent Change
..............................................
Conseco 96.9%
Autodesk(1) 57.0%
ITT Hartford 47.2%
Travelers 45.5%
Conrail(2) 43.9%
America Online(1) 43.4%
Burlington Resources(2) 41.3%
MBNA 41.1%
Times Mirror 38.7%
Bristol-Myers 37.9%
..............................................
Worst Performers (3/31/96-3/31/97)
Security Percent Change
..............................................
Hercules -31.9%
Unicom -27.8%
LodgeNet -19.2%
..............................................
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(1) Added mid-period.
(2) Sold mid-period.
As much as we would like to have nothing but successes, we know from
experience this will simply not happen (even golfer Tiger Woods had seven bogeys
on his way to a record-setting Masters victory). During the past year we had
several meaningful losers (see chart below).
In the case of Hercules and LodgeNet, we see no fundamental reason why the
shares will not eventually contribute to the portfolio's success, and we may
even add to the positions. As far as Unicom is concerned, we are not so sure. It
appears the business fundamentals may have been worse than we believed or
management is less capable than we thought; or perhaps both. Whatever the case,
you can expect us to find an alternative investment for these funds in coming
months.
Reminders
In our annual report to shareholders, we like to remind you that while we
are advisors of your Fund we prefer to think of ourselves as your partners. We
say this because we are all meaningful shareholders of the Fund just like you,
and we do not intend to do anything with your money that we would not do with
our own.
We look forward to the challenge of increasing the Fund's value in the
coming years, and we hope you share our enthusiasm and long-term perspective.
Respectfully submitted,
/s/ Hobart C. Buppert, II /s/ J. Dorsey Brown, III
- ------------------------- ------------------------
Hobart C. Buppert, II J. Dorsey Brown, III
President Executive Vice President
April 25, 1997
5
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FLAG INVESTORS VALUE BUILDER FUND
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Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on June
15, 1992 through the most recent fiscal year-end and reflects the impact of the
Fund's total expenses and the currently effective 4.50% maximum sales charge for
the Fund's Class A Shares. The graph reflects a 3.00% contingent deferred sales
charge for the Fund's Class B Shares, which is the applicable sales charge for
the represented time period, and a 1.50% maximum sales charge for the Fund's
Class DShares. The Class DShares' 1.00% maximum contingent deferred sales charge
is not reflected in the graph since it is not applicable to shares held for more
than four years, which is the represented time period.
While the following charts are required by SEC rules, such comparisons are
of limited utility since the indices shown are not adjusted for sales charges
and ongoing management, distribution and operating expenses applicable to the
Fund. An investor who wished to replicate the total return of these indices
would have had to own the securities that they represent. Acquiring these
securities would require a considerable amount of money and would incur expenses
that are not reflected in the index results.
The SEC also requires that we report the Fund's total return, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SECtotal return figures differ from those we
reported because the time periods may be different and because the
SECcalculation includes the impact of the currently effective 4.50% maximum
sales charge for the Fund's Class A Shares, 4.00% maximum contingent deferred
sales charge for the Fund's Class B Shares and 1.50% maximum sales charge for
the Fund's Class D Shares. In addition, the SECtotal return calculation for the
Class D Shares reflects the impact of a 1.00% maximum contingent deferred sales
charge. These total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
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FLAG INVESTORS VALUE BUILDER FUND
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Change in Value of a $10,000 Investment in Class A Shares*
June 15, 1992-March 31, 1997
[Graph appears here--see plot points below]
Flag Investors 91-Day
Value Builder S&P 500 U.S. Treasury
Fund Composite Bill
------------ ------- ------------
6/92 9,550 10,000 10,000
12/92 10,291 10,849 10,178
6/93 11,007 11,363 10,335
12/93 11,501 11,939 10,500
6/94 11,141 11,523 10,681
12/94 11,458 12,092 10,936
6/95 13,442 14,521 11,263
12/95 15,210 16,631 11,588
6/96 16,442 18,301 11,881
12/96 18,957 20,455 12,202
3/97 19,136 21,001 12,358
Average Annual Total Return*
Periods Ended 3/31/97 1 Year 5 Years Since Inception**
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Class A Shares 14.51% -- 14.50%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results. The
indices listed above are unmanaged and are widely recognized as indicators
of the performance in their respective sectors. The S&P 500 Composite is an
indicator of general market performance and the 91-Day U.S. Treasury Bill
is a measure of short-term bond market performance.
** June 15, 1992.
7
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FLAG INVESTORS VALUE BUILDER FUND
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Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class B Shares*
January 3, 1995-March 31, 1997
[Graph appears here--see plot points below]
Flag Investors 91-Day
Value Builder S&P 500 U.S. Treasury
Fund Composite Bill
------------ ------- -------------
1/95 10,000 10,000 10,000
3/95 10,781 10,692 10,099
6/95 11,686 11,697 10,251
9/95 12,645 12,640 10,397
12/95 13,160 13,397 10,550
3/96 13,788 14,119 10,680
6/96 14,179 14,743 10,817
9/96 14,478 15,205 10,967
12/96 16,280 16,477 11,110
3/97 16,104 16,917 11,252
Average Annual Total Return*
Periods Ended 3/31/97 1 Year 5 Years Since Inception**
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Class B Shares 16.08% -- 23.35%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
** January 3, 1995.
8
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FLAG INVESTORS VALUE BUILDER FUND
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Change in Value of a $10,000 Investment in Class D Shares*
November 9, 1992-March 31, 1997
[Graph appears here--see plot points below]
Flag Investors 91-Day
Value Builder S&P 500 U.S Treasury
Fund Composite Bill
------------ --------- ------------
11/92 9,850 10,000 10,000
12/92 10,134 10,127 10,031
6/93 10,819 10,607 10,186
12/93 11,285 11,145 10,349
6/94 10,913 10,756 10,527
12/94 11,203 11,287 10,779
6/95 13,122 13,555 11,101
12/95 14,820 15,524 11,420
6/96 15,999 17,083 11,710
12/96 18,413 19,094 12,026
3/97 18,565 19,604 12,179
Average Annual Total Return*
Periods Ended 3/31/97 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class D Shares 17.05% -- 14.99%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
** November 9, 1992.
9
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FLAG INVESTORS VALUE BUILDER FUND
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Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Institutional Shares*
November 2, 1995-March 31, 1997
[Graph appears here--see plot points below]
Flag Investors 91-Day
Value Builder S&P 500 U.S. Treasury
Fund Composite Bill
------------ --------- ------------
11/95 10,000 10,000 10,000
12/95 10,349 10,193 10,055
3/96 10,871 10,742 10,178
6/96 11,205 11,217 10,309
9/96 11,783 11,568 10,452
12/96 12,935 12,537 10,588
3/97 13,071 12,872 10,723
Average Annual Total Return*
Periods Ended 3/31/97 1 Year 5 Years Since Inception**
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Institutional Shares 20.24% -- 20.90%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
** November 2, 1995.
10
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FLAG INVESTORS VALUE BUILDER FUND
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Statement of Net Assets March 31, 1997
Market Value
Shares (Note 1)
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COMMON STOCKS: 60.0%
Banking: 3.3%
35,000 Citicorp $ 3,788,750
100,000 KeyCorp 4,875,000
10,000 Wells Fargo & Company 2,841,250
-----------
11,505,000
-----------
Basic Industry: 3.8%
70,077 Agrium, Inc. 893,482
20,000 Georgia-Pacific Corp. 1,450,000
30,000 Hercules, Inc. 1,267,500
32,232 Martin Marietta Materials, Inc. 829,974
140,000 Monsanto Co. 5,355,000
44,654 Potash Corp. of Saskatchewan 3,393,766
-----------
13,189,722
-----------
Business Services: 1.7%
81,900 First Data Corp. 2,774,363
151,100 SEI Corp. 3,173,100
-----------
5,947,463
-----------
Capital Goods: 1.2%
36,000 Eaton Corp. 2,551,500
110,300 Westinghouse Air Brake Co. 1,433,900
-----------
3,985,400
-----------
Consumer Durables/Non-Durables: 5.1%
140,000 Blyth Industries, Inc.* 5,057,500
33,500 Eastman Kodak Co. 2,541,812
110,000 Ford Motor Company 3,451,250
50,000 Liz Claiborne, Inc. 2,181,250
37,200 Philip Morris Cos., Inc. 4,245,450
-----------
17,477,262
-----------
Consumer Services: 3.5%
92,000 America Online, Inc.* 3,898,500
124,875 CUC International, Inc.* 2,809,688
30,000 Gannett Co. 2,576,250
50,000 Times Mirror Co. Class A 2,731,250
-----------
12,015,688
-----------
11
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FLAG INVESTORS VALUE BUILDER FUND
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Statement of Net Assets (continued) March 31, 1997
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS (continued)
Defense/Aerospace: 2.9%
31,171 Lockheed Martin Corp. $ 2,618,364
120,000 McDonnell Douglas Corp. 7,320,000
-----------
9,938,364
-----------
Electric Utilities: 0.6%
100,000 Unicom Corp. 1,950,000
-----------
Energy: 0.6%
71,600 MAPCO, Inc. 2,219,600
-----------
Entertainment: 0.9%
300,000 LodgeNet Entertainment Corp.* 3,150,000
-----------
Financial Services: 6.0%
83,500 American Express Co. 4,999,562
87,500 Countrywide Credit Industries, Inc. 2,165,625
172,000 Federal Home Loan Mortgage Corp. 4,687,000
118,125 MBNA Corp. 3,292,734
114,000 Travelers Group, Inc. 5,457,750
-----------
20,602,671
-----------
Health Care: 5.7%
50,000 Amgen, Inc.* 2,793,750
40,000 Baxter International, Inc. 1,725,000
38,000 Bristol-Myers Squibb 2,242,000
54,434 Eli Lilly & Co. 4,477,196
114,000 Johnson & Johnson 6,027,750
60,000 Mallinckrodt Group 2,467,500
-----------
19,733,196
-----------
Hotels/Gaming: 1.8%
200,000 Harrah's Entertainment, Inc.* 3,425,000
40,000 Hilton Hotels Corp. 970,000
32,500 ITT Corp.* 1,913,438
-----------
6,308,438
-----------
Housing: 1.8%
200,000 Champion Enterprises, Inc.* 2,975,000
108,000 USG Corp.* 3,388,500
-----------
6,363,500
-----------
12
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FLAG INVESTORS VALUE BUILDER FUND
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Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS (concluded)
Insurance: 8.8%
495,858 Conseco, Inc. $ 17,664,941
80,000 EXEL Limited 3,380,000
135,000 GCR Holding Limited 3,088,125
32,500 ITT Hartford Group, Inc. 2,344,063
80,000 Mid Ocean Ltd. 3,820,000
-----------
30,297,129
-----------
Multi-Industry: 2.5%
42,500 ITT Industries, Inc. 950,937
33,400 Loews Corp. 2,968,425
64,000 United Technologies Corp. 4,816,000
-----------
8,735,362
-----------
Real Estate: 2.5%
60,200 General Growth Properties, Inc. 1,911,350
324,136 Host Marriott Corp.* 5,510,312
35,000 National Health Investors, Inc. 1,299,375
-----------
8,721,037
-----------
Retail: 3.4%
124,664 J.C. Penney Company, Inc. 5,937,123
300,000 Kmart Corp.* 3,637,500
45,000 Tandy Corp. 2,255,625
-----------
11,830,248
-----------
Technology: 2.8%
70,400 Autodesk, Inc. 2,182,400
43,000 International Business Machines Corp. 5,907,125
33,400 Millipore Corp. 1,415,325
-----------
9,504,850
-----------
Telecommunications: 0.7%
69,000 MCI Communications 2,458,125
-----------
Transportation: 0.4%
17,491 Delta Air Lines, Inc. 1,471,430
-----------
Total Common Stock
(Cost $123,460,459) 207,404,485
-----------
13
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FLAG INVESTORS VALUE BUILDER FUND
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Statement of Net Assets (continued) March 31, 1997
Shares/ Market Value
Par(000) (Note 1)
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK: 2.4%
32,300 Conseco Inc., $4.28 Cvt. Pfd., Series E $ 4,089,988
75,000 Host Marriott Financial Trust 4,237,500
-----------
Total Convertible Preferred Stock
(Cost $5,724,337) 8,327,488
-----------
PREFERRED SECURITIES: 0.7%
100,000 Conseco Financial Trust
(Cost $2,500,000) 2,512,500
-----------
CONVERTIBLE BONDS: 1.6%
$2,000 Capstone Capital Corp., Cvt. Deb.,
6.55%, 3/14/02 1,830,000
339 Richardson Electronics, Cvt. Deb.,
7.25%, 12/15/06 276,285
1,661 Richardson Electronics, Cvt. Deb.,
8.25%, 6/15/06 1,422,231
2,000 Sizeler Property Investors, Cvt. Deb.,
8.00%, 7/15/03 1,840,000
-----------
Total Convertible Bonds
(Cost $5,461,496) 5,368,516
-----------
CORPORATE BONDS: 23.4%
1,000 American Life Holding Co., Sr Sub Nt,
11.25%, 9/15/04 1,131,250
1,000 Caesar's World, 8.875%, 8/15/02 1,040,000
873 Chattem, Inc., Sr Sub Deb, 12.75%, 6/15/04 953,753
-- Chattem, Inc., 1,000 Warrants, Expiring 6/17/99 8,900
3,000 Conseco, Inc., Nt, 8.125%, 2/15/03 3,048,750
700 CSX Corp., Nt, 7.00%, 9/15/02 695,625
575 Dillard Dept. Stores, Nt, 7.15%, 9/1/02 571,406
3,000 Eckerd Corp., Nt, 9.25%, 2/15/04 3,187,500
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 298,875
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,050,000
1,000 Fund America Enterprise, Nt, 7.75%, 2/1/03 990,000
4,500 HMH Properties, Nt, 9.50%, 5/15/05 4,590,000
3,000 Host Marriott Travel Plaza, Nt, 9.50%, 5/15/05 3,060,000
14
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FLAG INVESTORS VALUE BUILDER FUND
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Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS (concluded)
$2,775 ITT Corp., Nt, 6.25%, 11/15/00 $ 2,684,813
2,000 ITT Corp., Nt, 6.75%, 11/15/03 1,905,000
2,000 John Q. Hammons Hotels LP, Nt,
8.875%, 2/15/04 1,982,500
2,000 Jordan Industries, Nt, 10.375%, 8/1/03 1,982,500
5,000 J.P. Morgan, Nt, 6.875%, 1/15/07 4,831,250
2,200 Lockheed Martin Corp., Nt, 6.85%, 5/15/01 2,180,750
2,500 Lockheed Martin Corp., Nt, 7.25%, 5/15/06 2,471,875
5,000 LodgeNet Entertainment, Nt, 10.25%, 12/15/06 4,925,000
1,285 Markel Corp., Nt, 7.25%, 11/1/03 1,270,544
2,500 Marriott International, 6.75%, 12/15/03 2,396,875
2,100 Marriott International, 7.875%, 4/15/05 2,121,000
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,095,875
1,000 Masco Corp., Nt, 6.125%, 9/15/03 938,750
2,000 McDonnell Douglas Corp., Nt, 6.875%, 11/1/06 1,927,500
2,000 MCI Communications, Nt, 6.25%, 3/23/99 1,985,000
500 MCI Communications, Nt, 7.50%, 8/20/04 509,375
2,100 Millipore Corp., Nt, 7.20%, 4/1/02 2,089,500
2,100 Millipore Corp., Nt, 7.50%, 4/1/07 2,085,468
2,000 Nabisco, Inc., 6.70%, 6/15/02 1,945,000
500 New England Telephone & Telegraph, Nt,
6.15%, 9/1/99 494,375
1,000 Noble Drilling Company, Nt, 9.25%, 10/1/03 1,053,750
500 PepsiCo, Inc., Nt, 6.25%, 9/1/99 495,625
325 Petroleum Heat & Power, Nt, 12.25%, 2/1/05 354,656
2,000 Petroleum Heat & Power, Nt, 9.375%, 2/1/06 1,897,500
4,000 Premier Parks, Nt, 9.75%, 1/15/07 4,130,000
2,000 RJR Nabisco Inc., Nt, 7.625%, 9/15/03 1,905,000
1,500 Salomon, Inc., Nt, 7.125%, 8/1/99 1,507,500
1,000 Tektronix, Inc., Nt, 7.50%, 8/1/03 990,000
1,000 Tenneco, Inc., Nt, 8.075%, 10/1/02 1,035,000
1,000 Travelers Group, Inc., Nt, 6.125%, 6/15/00 970,000
1,000 Union Pacific Co., 6.25%, 3/15/99 988,750
1,660 USG Corp., 8.50%, 8/1/05 1,678,675
500 Xerox Corp., Nt, 7.15%, 8/1/04 496,250
----------
Total Corporate Bonds
(Cost $80,723,099) 80,951,715
----------
15
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) March 31, 1997
Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 4.0%
$1,000 Federal National Mortgage Assoc., 7.6%, 5/24/06 $ 985,940
----------
U.S. Treasury Notes
3,000 5.125%, 2/28/98 2,975,880
3,000 5.875%, 2/28/99 2,972,400
3,000 6.25%, 5/31/00 2,969,220
4,000 6.125%, 12/31/01 3,900,840
----------
12,818,340
----------
Total U.S. Government Securities
(Cost $13,906,131) 13,804,280
----------
REPURCHASE AGREEMENT: 6.8%
23,392 Goldman Sachs & Co., 6.25%
Dated 3/31/97, to be repurchased on
4/1/97, collateralized by U.S. Treasury
Notes with a market value of $23,860,630.
(Cost $23,392,000) $ 23,392,000
------------
Total Investment In Securities: 98.9%
(Cost $255,167,522)** 341,760,984
Other Assets in Excess of Liabilities, Net: 1.1% 3,664,622
------------
Net Assets: 100.0% $345,425,606
============
16
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Market Value
(Note 1)
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Class A Share
($278,130,436 / 16,228,513 shares outstanding) $17.14
======
Class B Share
($17,311,481 / 1,008,822 shares outstanding) $17.16+
======
Class D Share
($15,212,749 / 889,149 shares outstanding) $17.11++
======
Institutional Share
($34,770,940 / 2,013,930 shares outstanding) $17.27
======
Maximum Offering Price Per:
Class A Share ($17.14 / .955) $17.95
======
Class B Share $17.16
======
Institutional Share $17.27
======
- ------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
+ Redemption value is $16.47 following 4% maximum contingent deferred sales
charge.
++ Redemption value is $16.94 following 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Interest $ 6,100,648
Dividends 4,215,000
-----------
Total income 10,315,648
-----------
Expenses:
Investment advisory fee (Note 2) 2,227,355
Distribution fee (Note 2) 747,486
Transfer agent fee (Note 2) 105,449
Registration fees 85,812
Accounting fee (Note 2) 80,766
Miscellaneous 68,067
Printing and postage 53,700
Legal 51,314
Custodian fee 42,540
Audit 32,040
Director's fees 19,242
Pricing fee 11,041
Organizational expense (Note 1) 10,202
-----------
Total expenses 3,535,014
-----------
Net investment income 6,780,634
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 4,707,093
Change in unrealized appreciation or depreciation of
investments 34,681,754
-----------
Net gain on investments 39,388,847
-----------
Net increase in net assets resulting from operations $46,169,481
===========
See Notes to Financial Statements.
18
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Year Ended March 31,
- --------------------------------------------------------------------------------
1997 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 6,780,634 $ 5,157,897
Net realized gain from security transactions 4,707,093 4,755,355
Change in unrealized appreciation or
depreciation of investments 34,681,754 37,398,630
------------ ------------
Net increase in net assets resulting
from operations 46,169,481 47,311,882
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares (5,070,551) (4,710,084)
Class B Shares (119,491) (25,557)
Class D Shares (280,846) (319,956)
Institutional Shares (391,368) (19,252)
Net realized short-term gains:
Class A Shares -- (517,708)
Class B Shares -- (7,307)
Class D Shares -- (37,816)
Institutional Shares -- (12,834)
Net realized long-term gains:
Class A Shares (874,810) (4,012,860)
Class B Shares (38,817) (52,673)
Class D Shares (53,442) (298,195)
Institutional Shares (71,368) (76,965)
------------ ------------
Total distributions (6,900,693) (10,091,207)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 100,059,836 51,325,277
Value of shares issued in reinvestment
of dividends 6,063,887 9,094,751
Cost of shares repurchased (29,688,897) (26,963,230)
------------ ------------
Increase in net assets derived from
capital share transactions 76,434,826 33,456,798
------------ ------------
Total increase in net assets 115,703,614 70,677,473
Net Assets:
Beginning of year 229,721,992 159,044,519
------------ ------------
End of year $345,425,606 $229,721,992
============ ============
See Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68
--------
Income from Investment Operations:
Net investment income 0.39
Net realized and unrealized gain/(loss)
on investments 2.49
--------
Total from Investment Operations 2.88
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.36)
Distributions from net realized
long-term gains (0.06)
--------
Total distributions (0.42)
--------
Net asset value at end of period $ 17.14
========
Total Return(2) 19.90%
Ratios to Average Daily Net Assets:
Expenses(3) 1.27%
Net investment income(4) 2.51%
Supplemental Data:
Net assets at end of period (000) $278,130
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.40%, 1.38% and 1.70%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 3.02%, 3.11% and 2.53%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
20
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For the Period
June 15, 1992(1)
through
For the Year Ended March 31, March 31,
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.02 $ 11.23 $ 11.25 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.36 0.35 0.40 0.18
Net realized and unrealized gain/(loss)
on investments 3.03 0.80 (0.04) 1.18
------- ------- ------- -------
Total from Investment Operations 3.39 1.15 0.36 1.36
------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.41) (0.35) (0.38) (0.11)
Distributions from net realized
long-term gains (0.32) (0.01) -- --
------- ------- ------- -------
Total distributions (0.73) (0.36) (0.38) (0.11)
------- ------- ------- -------
Net asset value at end of period $ 14.68 $ 12.02 $ 11.23 $ 11.25
======= ======= ======= =======
Total Return(2) 28.86% 10.57% 3.14% 13.73%
Ratios to Average Daily Net Assets:
Expenses(3) 1.31% 1.35% 1.35% 1.35%(5)
Net investment income(4) 2.72% 3.07% 3.14% 2.88%(5)
Supplemental Data:
Net assets at end of period (000) $200,020 $146,986 $131,097 $83,535
Portfolio turnover rate 15% 18% 8% 8%
Average commissions per share -- -- -- --
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
For the Year
Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.71
-------
Income from Investment Operations:
Net investment income 0.26
Net realized and unrealized gain
on investments 2.51
-------
Total from Investment Operations 2.77
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.26)
Distributions from net realized long-term gains (0.06)
-------
Total distributions (0.32)
-------
Net asset value at end of period $ 17.16
=======
Total Return(2) 19.00%
Ratios to Average Daily Net Assets:
Expenses(3) 2.02%
Net investment income(4) 1.84%
Supplemental Data:
Net assets at end of period (000) $17,311
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.17% (annualized) for the period
ended March 31, 1995.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.87% (annualized) for
the period ended March 31, 1995.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
22
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
For the Period
For the Year Jan. 3, 1995(1)
Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $12.01 $11.14
------ ------
Income from Investment Operations:
Net investment income 0.21 0.08
Net realized and unrealized gain
on investments 3.05 0.79
------ ------
Total from Investment Operations 3.26 0.87
------ ------
Less Distributions:
Distributions from net investment
income and net realized short-term
gains (0.24) --
Distributions from net realized
long-term gains (0.32) --
------ ------
Total distributions (0.56) --
------ ------
Net asset value at end of period $14.71 $12.01
====== ======
Total Return(2) 27.89% 7.81%
Ratios to Average Daily Net Assets:
Expenses(3) 2.06% 2.10%(5)
Net investment income(4) 1.97% 2.94%(5)
Supplemental Data:
Net assets at end of period (000) $4,178 $ 341
Portfolio turnover rate 15% 18%
Average commissions per share -- --
See Notes to Financial Statements.
23
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class D Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- -------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.66
--------
Income from Investment Operations:
Net investment income 0.35
Net realized and unrealized gain/
(loss) on investments 2.47
--------
Total from Investment Operations 2.82
--------
Less Distributions:
Distributions from net investment
income and net realized short-term
gains (0.31)
Distributions from net realized long-term
gains (0.06)
--------
Total distributions (0.37)
--------
Net asset value at end of period $ 17.11
========
Total Return(2) 19.46%
Ratios to Average Daily Net Assets:
Expenses(3) 1.62%
Net investment income(4) 2.15%
Supplemental Data:
Net assets at end of period (000) $ 15,213
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.74%, 1.73% and 1.93%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.68%, 2.76% and 2.60%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
24
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Nov. 9, 1992(1)
through
For the Year Ended March 31, March 31,
- ----------------------------------------------------------------------------------------------------------------
<S> <C> 1996 1995 1994 1993
Per Share Operating Performance:
Net asset value at beginning of period $ 12.01 $ 11.22 $ 11.24 $10.45
------- ------- ------- ------
Income from Investment Operations:
Net investment income 0.33 0.31 0.36 0.14
Net realized and unrealized gain/(loss)
on investments 3.02 0.80 (0.04) 0.74
------- ------- ------- ------
Total from Investment Operations 3.35 1.11 0.32 0.88
------- ------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.38) (0.31) (0.34) (0.09)
Distributions from net realized long-term gains (0.32) (0.01) -- --
------- ------- ------- ------
Total distributions (0.70) (0.32) (0.34) (0.09)
------- ------- ------- ------
Net asset value at end of period $ 14.66 $ 12.01 $ 11.22 $11.24
======= ======= ======= ======
Total Return(2) 28.44% 10.18% 2.78% 9.00%
Ratios to Average Daily Net Assets:
Expenses(3) 1.66% 1.70% 1.70% 1.70%(5)
Net investment income(4) 2.37% 2.72% 2.79% 2.83%(5)
Supplemental Data:
Net assets at end of period (000) $ 13,757 $11,717 $11,051 $6,285
Portfolio turnover rate 15% 18% 8% 8%
Average commissions per share -- -- -- --
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout each period)
For the Period
For the Nov. 2, 1995(1)
Year Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1997 1996
Per Share Operating Performance:
Net asset value at beginning of period $ 14.77 $ 13.89
------- -------
Income from Investment Operations:
Net investment income 0.41 0.13
Net realized and unrealized gain
on investments 2.53 1.17
------- -------
Total from Investment Operations 2.94 1.30
------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.38) (0.10)
Distributions from net realized
long-term gains (0.06) (0.32)
------- -------
Total distributions (0.44) (0.42)
------- -------
Net asset value at end of period $ 17.27 $ 14.77
======= =======
Total Return 20.24% 21.12%
Ratios to Average Daily Net Assets:
Expenses 1.02% 1.03%(2)
Net investment income 2.83% 2.89%(2)
Supplemental Data:
Net assets at end of period (000) $34,771 $11,768
Portfolio turnover rate 13% 15%
Average commissions per share $ 0.066(3) --
- ------------
(1) Commencement of operations.
(2) Annualized.
(3) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
26
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Value Builder Fund, Inc. ("the Fund"), which was organized
as a Maryland Corporation on March 5, 1992, commenced operations June 15, 1992.
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end Investment Management Company. Its objective is to seek
long-term growth of capital and current income through diversified investments
in a professionally managed balanced portfolio of equity and debt securities.
The Fund consists of four share classes: Class A Shares, which commenced
June 15, 1992; Class D Shares (formerly Class B Shares), which commenced
November 9, 1992; Class B Shares, which commenced January 3, 1995; and
Institutional Shares, which commenced November 2, 1995. The Fund has not sold
Class D Shares since November 18, 1994, but existing shareholders may reinvest
their dividends.
The Class A, Class B and Class D Shares are subject to different sales
charges. The Class A Shares have a front-end sales charge, the Class B Shares
have a contingent deferred sales charge and the Class D Shares have both a
front-end sales charge and a contingent deferred sales charge. The Institutional
Shares do not have a front-end sales charge or a contingent deferred sales
charge. In addition, each class has a different distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price
reported for the day. If there are no sales or the security is not
traded on a listed exchange, the Fund values the security at the
average of the last bid and asked prices in the over-the-counter
market. When a market quotation is unavailable, the Investment Advisor
determines a fair value using procedures that the Board of Directors
establishes and monitors. The Fund values short-term obligations with
maturities of 60 days or less at amortized cost.
27
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes.
D. Securities Transactions, Investment Income, Distributions and
Other--The Fund uses the trade date to account for security
transactions and the specific identification method for financial
reporting and income tax purposes to determine the cost of investments
sold or redeemed. Interest income is recorded on an accrual basis and
includes the pro rata scientific method for amortization of premiums
and accretion of discounts when appropriate. Income and common
expenses are allocated to each class based on its respective average
net assets. Class specific expenses are charged directly to each
class. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. The Fund has deferred the costs incurred by
its organization and the initial public offering of shares. These
costs are being amortized on the straight-line method over a five-year
period from the Fund's commencement of operations.
28
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the Fund's investment advisor and Alex. Brown Investment
Management ("ABIM") is the Fund's subadvisor. As compensation for its advisory
services, the Fund pays ICC an annual fee. This fee is based on the Fund's
average daily net assets and is calculated daily and paid monthly at the
following annual rates: 1.00% of the first $50 million, 0.85% of the next $50
million, 0.80% of the next $100 million and 0.70% of the amount over $200
million.
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee. This fee is based on the Fund's average daily net assets and is
calculated daily and paid monthly at the following annual rates: 0.75% of the
first $50 million, 0.60% of the next $150 million and 0.50% of the amount over
$200 million.
ICC has agreed to reduce its aggregate fees so that ordinary Fund expenses
for any fiscal year do not exceed 1.35% of the Class A Shares' average daily net
assets, 2.10% of the Class B Shares' average daily net assets, 1.70% of the
Class D Shares' average daily net assets and 1.10% of the Institutional Shares'
average daily net assets. No fees were reduced for the year ended March 31,
1997.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $80,766 for accounting services for the year ended
March 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $105,449 for
transfer agent services for the year ended March 31, 1997.
As compensation for providing distribution services, the Fund pays Alex.
Brown & Sons Incorporated ("Alex. Brown") an annual fee that is calculated daily
and paid monthly. This fee is paid at an annual rate equal to 0.25% of the Class
A Shares' average daily net assets, 1.00% (includes 0.25% shareholder servicing
fee) of the Class B Shares' average daily net assets and 0.60% of the Class D
Shares' average daily net assets. For the year ended March 31, 1997,
distribution fees aggregated $747,486, of which $575,090 was attributable to the
Class A Shares, $85,517 was attributable to the Class B Shares and $86,879 was
attributable to the Class D Shares. The Fund did not pay Alex. Brown any
commissions for the year ended March 31, 1997.
29
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
March 31, 1997 was $10,628, and the accrued liability was $25,784.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 35 million shares of $.001 par value
capital stock (20 million Class A, 5 million Class B, 5 million Institutional, 3
million Class D and 2 million undesignated). Transactions in shares of the Fund
were as follows:
Class A Shares
----------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold................................... 3,858,982 2,645,585
Shares issued to shareholders on
reinvestment of dividends.................. 330,808 611,385
Shares redeemed............................... (1,584,547) (1,862,910)
------------ ------------
Net increase in shares outstanding............ 2,605,243 1,394,060
============ ============
Proceeds from sale of shares.................. $ 64,502,359 $ 36,567,203
Value of reinvested dividends................. 5,229,071 8,303,476
Cost of shares redeemed....................... (25,438,783) (25,776,184)
------------ ------------
Net increase from capital share transactions.. $ 44,292,647 $ 19,094,495
============ ============
Class B Shares
---------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
----------------- --------------
Shares sold................................... 754,825 252,563
Shares issued to shareholders on
reinvestment of dividends.................. 8,887 5,788
Shares redeemed............................... (38,898) (2,754)
----------- ----------
Net increase in shares outstanding............ 724,814 255,597
=========== ==========
Proceeds from sale of shares.................. $12,645,227 $3,471,865
Value of reinvested dividends................. 144,638 79,812
Cost of shares redeemed....................... (635,497) (39,242)
----------- ----------
Net increase from capital share transactions.. $12,154,368 $3,512,435
=========== ==========
30
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Class D Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold.................................... -- --
Shares issued to shareholders on
reinvestment of dividends................... 19,676 45,398
Shares redeemed................................ (68,822) (82,585)
----------- ------------
Net decrease in shares outstanding............. (49,146) (37,187)
=========== ============
Proceeds from sale of shares................... $ -- $ --
Value of reinvested dividends.................. 311,352 616,247
Cost of shares redeemed........................ (1,071,231) (1,105,221)
----------- ------------
Net decrease from capital share transactions... $ (759,879) $ (488,974)
=========== ============
Institutional Shares
-------------------------------
For the Period
For the Nov. 2, 1995*
Year Ended through
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold................................... 1,343,738 793,108
Shares issued to shareholders on
reinvestment of dividends.................. 23,612 6,860
Shares redeemed............................... (150,351) (3,037)
----------- -----------
Net increase in shares outstanding............ 1,216,999 796,931
=========== ===========
Proceeds from sale of shares.................. $22,912,250 $11,286,209
Value of reinvested dividends................. 378,826 95,216
Cost of shares redeemed....................... (2,543,386) (42,583)
----------- -----------
Net increase from capital share transactions.. $20,747,690 $11,338,842
=========== ===========
- -------------
*Commencement of operations.
31
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FLAG INVESTORS VALUE BUILDER FUND
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Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $79,767,274 and sales of investment
securities aggregated $28,149,581 for the year ended March 31, 1997.
Purchases of U.S. government obligations aggregated $10,920,000 and sales of
U.S. government obligations aggregated $4,994,843 for the period.
On March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $89,444,695
and aggregate gross unrealized depreciation of all securities in which there is
an excess of tax cost over value was $2,851,233.
NOTE 5--Net Assets
On March 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares............................................... $195,270,863
Class B Shares............................................... 15,993,831
Class D Shares............................................... 9,448,443
Institutional Shares......................................... 32,084,870
Accumulated net realized gain from security transactions........ 3,856,762
Unrealized appreciation of investments.......................... 86,593,462
Undistributed net investment income............................. 2,177,375
------------
$345,425,606
============
NOTE 6--Shareholder Meeting
On March 7, 1997, the Flag Investors Value Builder Fund held a special
meeting for its shareholders. During the meeting, shareholders elected the
following Directors: Truman T. Semans, Charles W. Cole, Jr., James J. Cunnane,
Richard T. Hale, John F. Kroeger, Louis E. Levy, Eugene J. McDonald, Rebecca W.
Rimel and Carl W. Vogt.
NOTE 7--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge.
The merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
32
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FLAG INVESTORS VALUE BUILDER FUND
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Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Value Builder Fund, Inc.
We have audited the accompanying statement of net assets of Flag Investors
Value Builder Fund, Inc. as of March 31, 1997 and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the respective periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
March 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flag Investors Value Builder Fund, Inc. as of March 31, 1997, the results of its
operations for the year then ended, and the changes in its net assets and its
financial highlights for each of the respective periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 2, 1997
33
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
CHARLES W. COLE, JR.
Director
JAMES J. CUNNANE
Director
Richard T. Hale
Director
JOHN F. KROEGER
Director
LOUIS E. LEVY
Director
EUGENE J. MCDONALD
Director
REBECCA W. RIMEL
Director
CARL W. VOGT, ESQ.
Director
HOBART C. BUPPERT, II
President
J. DORSEY BROWN, III
Executive Vice President
LEE S. OWEN
Executive Vice President
BRUCE E. BEHRENS
Vice President
GARY V. FEARNOW
Vice President
EDWARD J. VEILLEUX
Vice President
SCOTT J. LIOTTA
Vice President and Secretary
JOSEPH A. FINELLI
Treasurer
LAURIE D. COLLIDGE
Assistant Secretary
Investment Objective
A balanced mutual fund designed to maximize total return through a combination
of long-term growth of capital and current income.
34
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
